Friday, September 28, 2012

RAM Ratings has placed the AA1(s) rating of Pendidikan
Industri YS Sdn Bhd’s (“PIYSB” or “the Group”) RM150 million Bai’ Bithaman Ajil
Islamic Debt Securities (2008/2022) (“BaIDS”) on Rating Watch, with a negative
outlook. The Rating Watch is premised on the protracted delay in the receipt of
information from PIYSB’s management, despite repeated requests from RAM Ratings
since June 2012. This has impeded our ongoing surveillance of the
aforementioned debt securities. PIYSB is fully owned by Menteri Besar Selangor
(Pemerbadanan) and provides educational services via Universiti Selangor
(“Unisel”) and Inpens International College (“Inpens”) – both institutions of
higher-learning established under the Private Higher Educational Institutions
Act, 1996.

Meanwhile, RAM Ratings expects to resolve the Rating Watch
within 3 months of this announcement, ideally through the successful completion
of our review exercise. Nonetheless, if this avenue remains unavailable due to
(but not limited to) the issuer’s inability to provide the requisite
information, there may be downward pressure on the rating of PIYSB’s BaIDS or
the rating could be suspended. For further details, please refer to our paper,
Policy and FAQs on the Suspension or Withdrawal of Ratings by RAM Ratings,
published in November 2009 and accessible via www.ram.com.my.

RAM Ratings' Rating Watch highlights a possible change in an
issuer's existing debt rating. It focuses on identifiable events such as
mergers, acquisitions, regulatory changes and operational developments that
place a rated debt under special surveillance by RAM Ratings. In a broader
sense, it covers any event that may result in changes in the risk factors
relating to the repayment of principal and interest.

Issues will appear on RAM Ratings' Rating Watch when some of
the above events are expected to or have occurred. Appearance on RAM Ratings'
Rating Watch, however, does not inevitably mean that the existing rating will
be changed. It only means that a rating is under evaluation by RAM and a final
affirmation is expected to be announced. A "positive" outlook
indicates that a rating may be raised while a "negative" outlook
indicates that a rating may be lowered. A “developing” outlook refers to those
unusual situations in which future events are so unclear that the rating may
potentially be raised or lowered.

The firm was set up following Dubai-based Ridge Solutions
International Holdings’ acquisition of investment banking and asset
management company El Rashad. El Rashad, which operated under a conventional
finance structure, will now convert its assets to comply with Shariah, with
the entity now known as Ridge Islamic Capital.

Ridge Solutions will also inject US$100 million in capital
in Ridge Islamic Capital, which the firm will use to expand its business and
launch products including a US$150 million Islamic fund-of-funds.

The firm seeks to leverage the Egyptian government’s target
of increasing the domestic Islamic finance industry’s market share to 35%
from around 5% currently. In a statement, Miguel Henriques, the chief
executive of Ridge Solutions, said that: “With a population that exceeds 83
million and the government-set target to increase Shariah compliant finance,
Egypt represents an attractive proposition for us to present and
differentiate our products from modern and traditional Islamic banking.”

Meanwhile, Ridge Islamic Capital is also reportedly
evaluating potential acquisitions as it seeks to add brokerage services to
its capabilities.

RAM Ratings has reaffirmed Standard Chartered Bank Malaysia
Berhad’s (“Standard Chartered” or “the Bank”) respective long- and short-term
financial institution ratings, at AAA and P1. Concurrently, the AA1 rating of
the Bank’s RM500 million Subordinated Bonds has also been reaffirmed. Both
long-term ratings have a stable outlook. The 1-notch differential between the
rating of the Subordinated Bonds and the Bank’s long-term financial institution
rating reflects the subordinated nature of the former, as their payment
obligations rank junior to the claims of Standard Chartered’s senior unsecured
creditors.

The ratings reflect Standard Chartered’s healthy credit
fundamentals and strong presence in the consumer- and corporate-banking space.
As a wholly owned subsidiary of global banking group Standard Chartered PLC
(“the Group”) and given its integral role in advancing the Group’s growth
strategy in the Asia-Pacific region, the Bank is viewed to be strategically
important to the Group. Standard Chartered has benefited from sizeable
non-interest income and robust loan growth, particularly in personal lending,
via its Islamic banking operations. The former has accounted for more than a
third of the Bank’s gross income over the past 3 years, i.e. higher than
generally observed within its peer group. Moreover, the Bank’s profitability
compares favourably against that of its similarly rated peers.

Although Standard Chartered’s asset quality is currently
healthy, its rapidly expanding unsecured loan portfolio is not fully seasoned.
The Bank’s significant growth in this segment is viewed with some caution.
Moving forward, we envisage the Bank’s credit-cost ratio to stabilise at around
its current level (its annualised credit-cost ratio stood at 0.71% as at
end-March 2012), which is slightly higher than its AAA-rated peers’.
Nonetheless, we note that this is partly due to the Bank’s prudent provisioning
policies. Its capitalisation levels were sturdy as at end-March 2012, with
respective tier-1 and overall risk-weighted capital-adequacy ratios of 11.9%
and 13.9%.

TURKEY:
The government launched its much-anticipated debut sovereign Sukuk on the 18th
September, raising US$1.5 billion in an offering that attracted more than
US$8 billion-worth of orders.

The Sukuk, which has a tenor of five-and-a-half years,
offers a profit rate of 2.8%, equivalent to just 185 basis points over
mid-swaps.

The landmark sale follows the government’s announcement on
the 5th September of its appointment of Citigroup, HSBC and
Liquidity Management House for Investment to arrange the US dollar-denominated
notes, with roadshows for the issuance held in Asia and the Middle East.

The maiden offering also marks a turning point in Turkey’s
Islamic finance market, which, despite rapid growth, has been on an uphill
journey towards the issuance of the country’s first sovereign Sukuk, which
was initially announced in 2003.

Jason Kabel, the head of fixed income at the Bank of London
and The Middle East (BLME), noted that: “It is encouraging that a country
outside of Southeast Asia or the GCC is issuing a Sukuk of this size in US
dollars. The Sukuk was significantly oversubscribed, with the book size
closing at over US$8 billion despite being sub-investment grade and offering
a profit rate of approximately 2.8%.”

He added that the strong interest in the Sukuk demonstrates
huge global demand for US dollar-denominated Islamic debt. “We expect to see
more governments and institutions take advantage of this demand over the last
quarter of 2012,” he said.

The sovereign issuance comes after the first Turkish
corporate Sukuk was issued just in 2010, by Kuveyt Türk Participation Bank.
The issuance, worth US$100 million, actually preceded Turkey’s implementation
of tax neutrality measures for Sukuk Ijarah, adopted by parliament in
February 2011.

With corporate Sukuk from Turkey remaining few and far
between after Kuveyt Türk’s sale, the country’s debut sovereign Sukuk may
just provide a much-needed spark to spur the further development of the local
Sukuk market.